On September 17, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced a proposal to significantly update the statistical disclosures required of bank and savings and loan holding company registrants.[1] This is the first substantive change to the statistical disclosure requirements for financial institutions in more than three decades.

Industry Guide 3 - Statistical Disclosure by Bank Holding Companies (“Guide 3”) represents the policies and practices of the SEC’s Division of Corporation Finance in administering the disclosure requirements applicable to bank holding company registrants. Over the years since Guide 3 was last updated, significant reporting changes have been implemented through new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) and by the SEC through other rulemaking proceedings. As a result, many disclosures called for by Guide 3 overlap with FASB/IASB standards and SEC disclosure rules.[2]

To remedy this problem, following a 2017 request for public comment on the subject,[3] the SEC proposes to rescind Guide 3 in its entirety, to modernize and codify an updated set of disclosure rules in a new Subpart 1400 of Regulation S-K, and to amend certain parts of Regulation S-K, Regulation S-X, and Form 20-F.

Changes in Applicability. If adopted as proposed, Subpart 1400 will formally apply to registration statements and ongoing disclosure documents filed by banks, bank holding companies, savings and loan associations, and savings and loan holding companies.[4] The SEC considered including other registrants that engage in lending and deposit activities, such as insurance companies and fintech lenders, within the scope of the new requirements, but decided against such an expansion. As in the past, companies may provide information required by Guide 3 where such information is relevant to an understanding of its business despite not being formally within the scope of its applicability.

Changes in Disclosure Requirements. The SEC has proposed updating the following disclosure requirements of Guide 3:

  • Reporting Periods – The proposal would generally align the reporting periods for proposed disclosures with the periods required by SEC rules for financial statements (rather than the often longer periods currently called for by Guide 3), except in the case of credit ratio reporting (see below), which requires disclosure for each of the past five-years in initial registration statements and Regulation A offering statements.

  • Average Assets and Liabilities, Interest and Margin, and Rate/Volume Information – The proposal would retain all average balance sheet, interest and yield and rate/volume disclosures currently called for by Item I of Guide 3. The proposal would, however, require disclosure regarding new disaggregated categories of interest-earning assets and interest-bearing liabilities.[5] Averages shown would remain daily averages with a limited exception for undue burden or expense.

  • Investment Portfolio – The proposal would preserve weighted average yield disclosure for each range of maturities by category of debt securities currently called for by Guide 3 with certain changes to the categories presented.[6]

  • Loan Portfolio – The proposal would continue to require the maturity by loan category disclosure currently called for by Item III.B of Guide 3, but expands the required loan categories to correspond to disclosure required in U.S. GAAP or IFRS financial statements.[7] The proposal also changes the way rollovers and extensions are treated for purposes of the maturity disclosure.

  • Allowance for Loan Losses – While eliminating allowance and charge-off disclosure that is duplicative of U.S. GAAP and IFRS requirements, the proposal would codify disclosure of the ratio of net charge-offs to average loans outstanding and require such disclosure on a more disaggregated basis than currently required under Guide 3 (based on loan categories required to be disclosed in U.S. GAAP or IFRS financial statements).[8]

  • Credit Ratios – In addition to codifying the net charge-off to average loan ratio disclosure, the proposal would require disclosure of the following credit ratios (on a consolidated basis) and the components used in their calculation: (i) Allowance for Credit Losses to Total Loans; (ii) Nonaccrual Loans to Total Loans; and (iii) Allowance for Credit Losses to Nonaccrual Loans.[9] In addition, the proposal would require narrative disclosure regarding factors that drove material changes in the ratios or related components during the periods presented.

  • Deposits – The proposal would codify Guide 3 disclosure requirements regarding deposits, but would also require additional disclosures regarding deposits that exceed the FDIC insurance limit or are otherwise uninsured.

  • Short-term Borrowings – The proposal would retain only the requirements to disclose the average balance and related average rate paid for each major category of interest-bearing liabilities currently called for by Item I.B.1 and I.B.3 of Guide 3. The proposal would further separate and rework the major categories of interest-bearing liabilities to include those referenced in Item VII and Article 9 of Regulation S-X.[10]

Elimination of Duplicative Requirements. The SEC proposes to eliminate a number of disclosures required under Guide 3 because they are duplicative of or overlap with disclosures required under U.S. GAAP and IFRS or other SEC disclosure requirements. These include:

  • Investment Portfolio Value and Maturity Analysis other than Debt Securities

  • Issuer Concentration (i.e., investments exceeding 10% of stockholders’ equity)

  • Loans by Type of Customer (i.e., commercial/financial/agricultural, real estate-construction, real estate-mortgage, installment loans, lease financing, etc.)

  • Risk Elements of Loan Portfolio (i.e., non-accrual loans by type, potential problem loans, etc.)

  • Nature and Amount of Interest-bearing Assets

  • Loan Loss and Charge-Off History

Going Forward. The period for comment submission to the SEC is open until 60 days following publication in the Federal Register.[11] At this time, there is no prospective timeline for implementation of any rules resulting from the SEC’s proposal. Accordingly, registrants should continue to comply with Guide 3 as it currently stands in registration statements and disclosure documents while the SEC’s proposal is pending.

Interested parties may submit comments one of three ways: (1) via internet at the SEC’s public comment site (https://www.sec.gov/cgi-bin/ruling-comments) (2) by e-mail to rule-comments@sec.gov, or (3) by U.S. mail to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to file number S7-02-17.